Glossary of Loan Terms

Capitalization: The practice of adding unpaid interest charges to the principal balance of an educational
loan, thereby increasing the size of the loan. Interest is then charged on the new
balance, including both the unpaid principal and the accrued interest. Capitalizing
the interest increases the monthly payment and the amount of money you will eventually
have to repay. If you can afford to pay the interest as it accrues, you are better
off not capitalizing it.

Cost of Attendance: The cost of attendance (COA), also known as the cost of education or "budget", is
the total annual amount it should cost you to go to school. This amount includes tuition
and fees, room and board, and allowances for books and supplies, transportation, and
personal and incidental expenses. Butte College has different standard budget amounts
for students living off-campus, with parents, and in-state or out-of-state.

Default: Failure to repay a loan according to the terms of the promissory note. A loan is
in default when the borrower fails to pay several regular installments on time (i.e.,
payments overdue by 270 days) or otherwise fails to meet the terms and conditions
of the loan.

Deferment: Deferment occurs when a borrower is allowed to postpone repaying the loan. If you
have a subsidized loan, the federal government pays the interest charges during the
deferment period. If you have an unsubsidized loan, you are responsible for the interest
that accrues during the deferment period. You can still postpone paying the interest
charges by capitalizing the interest, which increases the size of the loan. Most federal
loan programs allow students to defer their loans while they are in school at least
half time. If you don't qualify for a deferment, you may be able to get a Forbearance.
You can't get a deferment if your loan is in default.

Delinquent: Any loan that is 59 days or less delinquent is reported to the credit bureaus as
current. Any loan that is 59 or more days delinquent is reported as delinquent. Loans
that are 270 days (or more) delinquent are considered to be in default.

Federal Default Fee: A fee paid to the Federal Reserve Fund to help offset the costs of defaulted loans.

First time borrower: A student who has not successfully completed the first year of a program of study
in which he or she is currently enrolled and who has not previously received a Federal
Stafford loan.

Forbearance: A borrower who is willing but unable to make payments, and who does not qualify for
a deferment, may request a forbearance from the lender. Forbearance allows temporary
cessation of payments or smaller payments for a specific length of time. The lender
may grant forbearance of principal, interest or both. The borrower is always responsible
for repayment of accrued interest charges. The borrower can make interest only-payments,
or the interest will be capitalized (added on to the principal).You can't receive
a forbearance if your loan is in default.

Grace Period: The grace period is a short time period after graduation during which the borrower
is not required to begin repaying his or her student loans. The grace period will
also kick in if the borrower leaves school for a reason other than graduation or drops
below half-time enrollment. The grace period is for six months. If you return to an
approved school during the six month grace period and attend at least halftime, your
entire grace period is reinstated.

Guarantee Agency: The guarantee agency (sometimes called the guarantor) oversees the student loan process,
including the approval of the loan, and the issuance of a guarantee to the lender
that the student loan will be repaid if the borrower defaults (does not repay the
loan). A guarantee agency also provides public information about student loans, keeps
permanent records of all loans made through it, enforces state and federal rules,
and collects on defaulted loans.

Loan Consolidation: An entirely new loan combining the repayment of two or more student loans, reducing
the amount of monthly payments and extending the loan term.

Master Promissory Note: The loan application. A legally binding document, signed by the borrower, listing
the terms and conditions of borrowing and repayment of the loan.

Origination Fee: A fee paid to the federal government to help run the Federal Stafford loan programs.

PLUS Loans: Federal loans made by commercial institutions that are designed to help parents meet
the cost of a college education for their dependents.